It is insurance, which is defined as a financial product that protects against unforeseen future losses that would exceed your ability to absorb.  

hard to say since there is no correct path, everyone has different circumstances so everyone has a different method.determine your goals, develop a strategy, create a clear plan to get there, execute.

And because I am considering doing future live-in flips (after selling this house) - I'm wondering about the calculations in that circumstance. 

The market in Denver is changing (as it is everywhere, I'm guessing) and the particulars of the job market, housing availability, and population fluxes makes for unique and dynamic circumstances.

Or as some have said, make a lowball offer to reflect potential unforeseen damages.psI did decide to post on this topic even though it may be old. 

Whatever documents you use should be tailored to your specific circumstances and acceptable/enforcible in your local area.

I hope I did not confuse you more but the bottom line is that a good part of the answer, as it is with most cases, is based on the facts and circumstances.

Best to talk to an attorney to help your specific circumstances in California.

It is worth considering, however, the wisdom of the cash flow discussion and particularly the contingencies of short term, unforeseen costs, because without a property or with a property in terrible disrepair, there really is no equity.To all the other commenters, it is a reassuring moment to realize this community isn't just a bunch of flame-throwing trolls who want to one-up each other with comments and braggadocio. 

There are just too many advantages to borrowing your money locally than taking a chance on out-of-town strangers that will have no idea of the prevailing terms in you area, knowing you personally, or knowing the homes or circumstances in your community.You'll want to develop a stable of local lenders you can approach depending upon how your properties meet their requirements.